Yes selling this policy will be a test of Labour. Already you can see commentary focussing on the individual - costlier clothes, not knowing what my future Kiwisaver contribution will be, govt changing my contribution rate.The staus-quo is unsustainable and this looks like a innovative policy that, combined with previously announced policies, will help address the problems of a high current account deficit, over-valued exchange rate, low investment in the tradeable sector.

The electorate/media still focusses on individuals - the Labour leadership and the many stumbles made. To move that focus to these complex, while integrated, policies will be a true test. This is Labour's last chance.

I think David Parker needs to be very careful not to oversell the effect on the exchange rate, tat Labour and others were considering compulsory (or near to) retirement savings has been known for sometime and the increase of savings, especially while the Cullen fund contributions are halted, in combination with KiwiSaver will help this. Also, Brian Fallow: Labour's plan looks good.

Any extra tools are good, really. I was glad we brought in LVRs, not because I thought it would help, but because there should at least be tools in the toolbox. It could take a long time to work out how to use them. Or maybe it will be continual learning, because conditions continually change. But at least they have them. At the moment, it's like we are trying to swim using only one arm and one leg. Getting control of all 4 limbs isn't going to mean the economy suddenly launches into a perfect Australian Crawl, but it can at least begin to learn the Crawl.

Its well worth a look, but like Tamsyn Parker, I am a little bit nervous about the way the combination of compulsory Kiwisaver (which having lived in Oz for a few decades I support) and Government control over individual contribution rates will work in practice.

Having been an assiduous Kiwisaver for some time, I quite like the certainty of knowing how much I (can) contribute.

There is a fundamental problem with all forms of retirement "savings":

All the goods and services retirees consume have to be produced by workers (or imported in exchange for exports, which amounts to the same thing).

We currently have a fairly effective retirement "savings" plan - house price inflation. It results in workers paying more for a place to live to the benefit of those retirees who have acquired a valuable property over the years. (Of course retirees with no property lose out).

If you substitute that with a pile of money in Kiwisaver, nothing really changes - inflation will limit the value of the "saved" funds and/or raise the cost of living of the workers.

It's no different to taxing workers to pay out a pension - except that doing that has the advantage of providing retirees with an equal, fair amount to live on, rather than a fortune for some and poverty for others.

I suspect that the battleground will be at a much lower level: will quelling the exchange rate mean children’s clothes cost more? (Yes, a bit, but it will really help our export sector.)

I'm going to lay a trigger warning on you Russell, for a word I know you really don't like. But I hope the politicians and media folks who are going to be dominating the discussion of this check their economic privilege, and remember there are people out there for whom it really is a big fucking deal when their kids come from school with no idea where they left that newish jacket.

Whatever the merits, it's a real level up that David Parker managed to coherently articulate a policy from Labour that merits more than a eye-roll. But it's also incumbent on everyone else to remember public policy is more than a game of poll points.

I haven't fully thought this through as an idea, but one way of modifying this would be to include a Kiwisaver surcharge on home lending (*in addition to, not replacing the existing proposal). That is, if you can afford to borrow more for a home, then you can also afford to save more into Kiwisaver. This would take some heat directly out of housing, with a proportionately greater effect on those who can afford to borrow more.

Germany has low net wealth, half that of Greece & France, less than a third of that in Spain. Weird eh? Turns out a good deal of this is due to rules and regulations that favour capital investment over fetishistic home ownership

Of course Blinglish is.Apparently it’s old .I noticed a couple of comments on Brian Fallow. “National should steal this"….

Listening to Blinglish on Morning Report earlier today, he was suddenly concerned about the policy driving up living costs for NZers. The words “tu quoque”, “pot”, “kettle” and “black” immediately came to mind.

An intriguing idea, for this non-economist anyway. I presume the variations will be relatively in line with OCR adjustments - i.e. you'd expect your Kiwisaver contributions to change by 0.25%-0.5% each adjustment. It would be much broader in it's inflation-control (as the number of people in employment > number who own houses) and lining individual retirement funds with monetary policy side-effects seems significantly greater than lining (mostly) offshore funders and (lightly) local savers. And I'm guessing they'll retain OCR adjustments as well, so each of the VSR and OCR adjustments would be more "gentle" as the impact is spread over multiple tools.

Hizzah for compulsory Kiwisaver at the least - now who is going to grab the "Kiwisaver means-tested superannuation payments" third rail?

I like some of this. The variable savings rate is a very curious and interesting idea. I don’t think we can foresee how it would be used clearly. Since it is essentially imposing a tax, it gives the Reserve Bank the ability to bring inflation down by raising it. It’s a much more powerful tool than the OCR because it works directly on the people spending the money, rather than indirectly through the banks printing it through debt.

It’s a very good idea to address inflation directly through economic policy. It should never be left to the Reserve Bank to do it all, because they just don’t have enough power. With economic policy changes actually targeting inflation, they will only have to smooth out things.

I’m not entirely clear on how they intend to tackle the high dollar, though. I’m guessing that by putting the risk free rate down it should bring the dollar down, and they might have the freedom to do that if they can tackle inflation via variable savings. But since the key inflation driver is house prices at the moment, a low cash rate encourages more debt, which drives prices up.

So controlling property investment directly seems like the only answer. They’ve got a bunch of ideas. I’d expect every last one of them to be unpopular with property owners. It’s bold though, I give it that. Glad to see some movement here.

Hearing this a lot - plenty of smart people claiming "regressive taxation!" - but that's only true if you believe the OCR also is "imposing a tax". At which point it's a tax whose revenue collection lands disproportionately in the overseas accounts of large global financial firms. I don't buy it.

Whatever the merits, it's a real level up that David Parker managed to coherently articulate a policy from Labour that merits more than a eye-roll. But it's also incumbent on everyone else to remember public policy is more than a game of poll points.

It's a bit hard to see the OCR as a tax. It's a far more complicated mechanism. But the variable savings rate is pretty much an identical mechanism - you take an amount out of people's pay, and put it aside. They can use it later, sure, but at the time, it acts like a tax. Exactly like one. It will be administered by the payroll staff and checked by the IRD.

Perhaps you could argue that in a roundabout way the OCR works like that, but if so, you'll have to explain the mechanism. Do you mean that raising it raises the interest people are paying on their loans? That only affects people who have loans. People who have net positive balances get more returns on their savings so it works the other way around. That's not like a tax at all. Furthermore, the government doesn't get to take it in as revenue. Banks collect the interest on the loans. All of this is why it's such a weak lever to control inflation. Clearly so, because it really hasn't worked, and it's been as at historic lows for a long time.

True. And we need to stop selling natural assets (land, forests etc) to overseas buyers so income from them, capital gain etc goes the same direction. We haven't learned anything from Rogernomics and selling railways etc to the "investment" banksters like Fay Richwhite. Bad enough with these Australian banks profiting from household debt..we simply pay/lose too much income to overseas "interests" (Telecom, Serco!!) and so rack up domestic debt. All very well telling ordinary folk to save when government is not focused to investing in basic infrastructure assets: houses, small businesses, clean water, affordable health and tertiary education, apprenticeships, etc..but rather on luxury "tourism" and foreign speculative extractive industries ..mining NZ natual assets; gold, gas, sand, oil ......and fish!. Too mcu capital/wealth is being siphoned out of this country and stowed away in unproductive havens.

Because both the OCR and the VSR have "neutral" positions - i.e. a (say) 7% contribution rate is standard, not a tax but a compulsory private savings account. They may drop that to 6.75% during stimulators periods. That isn't a benefit. Increasing the rate you transfer your own money to 7.25% to constrain money supply therefore equally isn't best viewed as a tax. At best the "tax" is only for the periods of constraining money supply, at which point you'd have to call the lower rates a benefit, or subsidy or something. I get the loose point, but believe labelling it a tax misses it's intention and operation.

Also, the OCR "only" affects people with either interest-bearing savings or an interest-bearing loan. That's A LOT of people. I'm not convinced it's dramatically less than those people who will be enrolled in compulsory Kiwisaver (less sure).

The OCR is designed to increase or decrease the money supply - the fact it affects mortgages is just a by-product of the way it's implemented, not a feature or specific goal in itself. A VSR will do the same, just via adding another channel to that mechanism. One that during constraining periods just delays your own access to your "money supply" rather than removing it from you entirely and shipping it to others offshore. And during stimulatory periods will give you access to superannuation funds early. Broadening and lowering the mechanism for altering the money supply strikes me as a good thing.

It occurs to me that if I was short of money and the government reduced my take-home pay through increased Kiwisaver contributions, I'd just compensate by reducing the principal repayments on the mortgage. (With the reasonable justification that I'd have more money later when the Kiwisaver matures).

That leaves an equal amount of funds left to pay interest, and so isn't going to have the effect of limiting house prices.

But there's no VSR now. That's its neutral position - zero. If you introduce it, every single taxpayer will start getting it taken out of their pay. It will mean they will have less money in their pockets, in direct proportion to the rate. In that respect, everyone will feel it like a tax. Hell, it is a tax, it's just one you get back later, like we're meant to with all taxes, one way or another. Why even not call it a tax, other than that the word sounds bad? That's precisely how contributions to the Ozzie scheme came across to me. A tax I had to pay, which I might get back in 40 years.

The OCR is not at all like that. My parents don't give a stuff about it, because they're freehold. My friend with $800,000 loan on his million dollar house will crap himself because even with 2 incomes, a rise in the rate could mean he can't pay the mortgage. The minimum wage person will have 7% less money to subsist on with the VSR, but changes in the OCR might mean their rent changes, eventually. Maybe. Maybe not, if the landlord locked in a long fixed term loan.

They're just different mechanisms.

The OCR is designed to increase or decrease the money supply – the fact it affects mortgages is just a by-product of the way it’s implemented, not a feature or specific goal in itself. A VSR will do the same, just via adding another channel to that mechanism.

Sort of. I think it's a good idea, I'm just saying it's not some natural mirror of the OCR. They're very different beasts. Its primary effect on money supply would be to reduce it, as it increased. In pretty direct proportion. The OCR has a non-linear effect. As the cost of debt approaches zero, the amount of debt people can afford increases exponentially. If you halve the cost of debt, then you can borrow twice as much on the same income. So it's most certainly not a case of putting one up as much as you put the other down, for a net zero effect. If interest rates doubled, went up to 12%, say, then most families would have to spend all of their money paying the mortgage. But a 12% rise in the VSR would cost them exactly 12%.

There is also a huge lag in effects from the OCR. Changes take years to settle in, because people have huge chunks of mortgage on fixed terms. I have most of mine that way. It's going to be years before I feel the bite of this weeks changes. But if a VSR was implemented, then the moment they make a change, you'd feel it in your next pay packet and retailers would notice it by the end of the month.

Parker has noted that New Zealand has low general inflation but high house price inflation. The Reserve Bank has historically responded to house price inflation by raising interest rates for everyone. These high interest rates reduce demand by hurting households with mortgages and businesses with variable rate loans; they also tend to increase the exchange rate.

In short, Parker is proposing to lower house price inflation with a view to allowing the Reserve Bank to lower interest rates and the exchange rate (see 6.10 of policy document). I think this is exactly what is needed, and it feels like we've been fumbling around something like this proposal for the last 20 years.

It's good to see anti-tax avoidance measures and CGT in the mix as well (see paragraphs 6.5 - 6.9; 6.15 - 6.18 of the policy document).

Because most of the banks that operate in New Zealand are owned overseas, most of profits made on the loans that finance the housing sector leave the economy. The re-establishment of a mix of domestically and government owned banks within the industry would tend to mitigate this.

Some of our core markets, including our power and telecommunications markets, seem uncompetitive and generate high prices. These prices lower disposable incomes and make all locally produced goods and services more expensive (by increasing the costs of production). Intervention in these markets would tend to make New Zealanders better off. (Parker has this at paragraphs 6.19 - 6.23.)

I don't know if we'll ever get all this but it's good to see that the discussion is on the right track.

And we need to stop selling natural assets (land, forests etc) to overseas buyers so income from them, capital gain etc goes the same direction

I wish I had asked this question when Rod Oram made his initial post - yes the profit etc now does go overseas, but then again didn't the overseas buyer also just deposit a massive chunk of money into NZ to the seller? Surely that is a good thing, and so overseas ownership is not a black and white "it is bad" thing?

Im not an economist so I don't understand this stuff, but hopefully someone here does and can explain.